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Joni Teves, analyst with , said volume on the Shanghai Gold Exchange picked up significantly lately, with combined turnover for the two gold contracts around six-month highs. They reached 34 metric tons Monday and averaged 24 tons over the first few business days of 2014, compared to an 18-ton average in December, she said.

“The increased activity in China is consistent with typical seasonal patterns, as we head closer to the Chinese New Year at the end of the month,” she said. “The dip in prices towards the end of 2013 likely encouraged a pickup in physical buying and therefore a further drawdown on existing stocks.”

The decline in bullion prices over the last couple of years is part of the impetus for the buying, Sin said, also citing a move by the Chinese industry to build gold stocks ahead of Chinese New Year celebrations. On the last day of 2013, gold nearly fell back to its June lows that in turn were the weakest levels since the summer of 2010. Gold was down nearly 40% from the 2011 peak.

One issue for the Chinese industry, Teves added, is fresh import licenses needed for 2014. With Chinese New Year festivities earlier this year, the time between getting the quotas in place and shipping metal is limited.

With the Chinese demand, the physical market likely would tighten significantly if India were to relax some of the rules limiting gold imports, Sin said. Indian authorities instituted a number of measures in 2013 in an attempt to curb gold imports and reduce the country’s current-account deficit. They raised duties on gold imports several times; they currently stand at 10%. Also, a so-called 80-20 rule that stipulates that a minimum of 20% of all gold imported must be exported before further imports can be made.

“If the India market would open, there will be a shortage of supply,” Sin said. “For the time being, the supply is just enough to feed the Chinese market and (the rest of the) Asian market.”

Analysts with HSBC, in a late-Monday research note to clients, said Indian authorities are reportedly in discussions on reducing the import duties on gold and relaxing regulations limiting imports. News reports say while the rules have curbed official gold imports, there also has been an increase in smuggling.

“The return of India as a greater importer would be gold friendly but it is still not clear when, or even if, the authorities will cut the tariffs on gold,” HSBC said.